Saturday 27 October 2001 21.44 EDT
First published on Saturday 27 October 2001 21.44 EDT

Grab hold of something fortifying and sit down for this. Advertising by entertainment and media companies is now falling a thousand times faster than it was in the first six months of the year.

You suspect the methodology behind such a vast number? Fair enough. There are plenty of examples which are all the more alarming for their less fantastical nature.

Travel, drugs, housing and clothes are all sectors which, to borrow a phrase being heard too often for comfort, have 'fallen off a cliff'. The downturn has wiped nearly £300 million off the total UK advertising spend, a fall of 4.9 per cent against the same period a year ago.

Pharmaceutical companies are spending almost 400 times less now than they were between January and June. The only reason dotcom and computer companies are falling less sharply is because they were doing pretty badly anyway.

The decline in some sectors has slowed in recent months but is still significant: food is down 7.5 per cent on a year ago, retail is down 7.9 per cent and cars by 2.7 per cent.

Motor industry advertising accounts for the second-largest chunk of spending after finance, and it is down by £30m.

No surprise, then, that the redundancies have already started in broadcasting and the ad agencies themselves. Nor that the rise of media company profit warnings is second only to that of software and computer businesses in the latest survey by the consultancy Ernst & Young, published today.

'The UK last saw such a significant drop in performance within a short period of the start of the Gulf War in 1990,' says Ernst & Young. The last time there was a prolonged decline in advertising spend in the US was during the TV ban on cigarette advertising in the early Seventies.

Many have been quick to point to 11 September as the critical moment, it says. 'Businesses are holding back significant discretionary spending, including advertising, until there is greater certainty about the outcome.'

But the analysts add an important caveat, that the events in the US and Afghanistan have 'contributed to the fast acceleration of a problem that has been looming for some time already'.

At least one multinational agency would agree. Fernando Rodes, chief executive of Havas's subsidiary media strategy business, Media Planning Group, says advertising was in dire straits long before the attack on the World Trade Centre. 'The [stock] value of the whole sector had fallen by 30 per cent between the day we launched our bid for Tempus [20 July] and 11 September,' he says. 'This does not happen because everything is going well.'

Bob Offen, Media Planning Group's chief executive in the UK, says the circumstances have provided some companies with a screen to hide behind.

'I have never seen the slope down as steep as it is now,' he says. 'But a lot of companies are taking the opportunity for a clear-out. If you were thinking of making a profit warning or making people redundant, this is a convenient smoke screen.'

Financial directors are, he ventures, 'having a field day cutting discretionary spending', although he believes that in due course this will start up again.

Rodes attributes this to strong fundamentals: the markets are still working and interest rate reductions mean there is still plenty of money being injected into the system; consumer spending is still healthy, though it was due to slow after a buoyant period. Then there is the comforting knowledge that leading brands are still investing in marketing (last week saw the launch of Microsoft's Windows XP campaign, only a week after the start of Unilever's bid to corner the olive oil market with Bertolli) and they are not the type to make impulsive, short-term decisions.

Jonathan Barnard, 'knowledge manager' at UK media agency Zenith, agrees. 'It is true that brand building might be delayed,' he says, 'but there is plenty of evidence that the companies that did well out of the last recession maintained their spend.'

It would be impossible to find anybody in the media industry who wouldn't tell you that it is now essential for business to buy its way out of recession by promoting its brands all the harder. It is now part of industry lore that Barclaycard and Rowan Atkinson obliterated Access and that Nescafé Gold Blend got the brew just right by spending their way through the Nineties downturn.

But what spending is going on now is increasingly tactical. The numbers, from Media Planning, show a marked difference between the rate of decline in TV, as opposed to its rivals.

'Television advertising in September is down by 16 per cent,' said managing director Marc Mendoza, 'which is twice as much as for radio or the press.'

This is because most of the firms now keeping the advertising industry alive - just about - typically opt to convey their messages in the faster-responding alternatives to TV, whose waiting lists for airtime rule out, for example, campaigns for instant price cuts.

'Some companies have actually increased their advertising spend,' says Mendoza. 'Discount airlines like Buzz and Ryanair are advertising tactically to tell everybody about their lower fares. Their passenger volumes haven't really fallen off, although their margins may have. Then there are hotels. They are desperate to tell people about the deals. That kind of advertising is much more suited to the press or radio.

But any sense of security in radio and the press would be premature, if not false. One of the key reasons they do less badly is because the advertising tap can be turned off as quickly as it is turned on. TV broadcasters generally ask for two months' notice for an ad campaign. That involves a commitment that many finance directors feel unable to authorise in current circumstances.

'It would be better to say that the press people are finding it easier, but that they are doing less badly than everybody else rather than that they are doing well,' says Mendoza. 'They are consoling themselves with that.'

One of the pieces of popular wisdom doing the rounds is that TV advertising is now so cheap that it will soon become attractive on the 'you'd be a fool not to' principle. That may be the case with some broadcasters, but by no means with all.

Zenith's Barnard says: 'ITV is charging £6.56 per thousand viewers against the industry average of £5.45. That is a 19.5 per cent premium which, incredibly, is higher than it was a year ago, when the premium to the rest of television was 16.1 per cent.

'It is purely supply and demand. ITV has another problem in that it created more volume when it moved News at Ten in a market with less demand.'

The future for advertising, whatever the slightly hopeful references to marketing's new status as an essential, not a luxury, for a go-go business, looks decidedly glum. What will replace the famously extravagant Government spend of 2001 in election-free 2002? What will replace the largesse of the dotcoms and the telecoms?

'In France and Spain alone, the leading brands in the telecoms sector were spending four times the amount that was spent by the next biggest category,' says Rodes. 'We will not see that again. It is history.'

The Ernst & Young analysts, noting that the Advertising Association is estimating a 40 per cent industry-wide increase in spending over the next 10 years, say the growth will come through relatively new techniques such as direct marketing, cross-promotion and display.

But they also issue a stark warning: 'For many agencies, the timing of this downturn could not be worse: marketing budgets are traditionally set in the autumn and are rarely adjusted mid-financial year. This means that any impact of the drop of confidence on budgets now could be felt until at least 2003.'